Family Business - Entrepreneurship Development

Family Business in Entrepreneruship

1. MODULE 4 FAMILY BUSINESS Mr. Ajinkya Damle Assistant Professor, MBA@AITM

2. MODULE 4 Meaning of Family Business Importance of Family Business Types o f Family Business History o f Family Business Responsibilities And Rights of Shareholders o f Family Business Succession in Family Business Pitfalls o f Family Business Strategies for Improving the Capability o f Family Business Improving Family Business Performance

3. FAMILY BUSINESS A family business is a commercial organisation in which decision-making is influenced by the multiple generations of a family related by blood or marriage who are closely identified with the firm through leadership or ownership Family business have been crucial features of business sector for centuries and remain important today Family business firms can be small, medium or large and usually have appeared in all sectors and in all periods Family business often grow and sustain as the next generation of the families keep on continuing the business

4. IMPORTANCE OF FAMILY BUSINESS Contributing to economic development Spirit of Entrepreneurship Philanthropy (welfare on general public) Trust lowers transaction cost Q uick to react and take decisions Information as a source of advantage

5. TYPES OF FAMILY BUSINESS Family Owned Business Family Owned and Managed Business (active participation by one family member in top management) Family Owned and Led Business (active participation by one family member in top management and has major influence on business activities)

6. TYPES OF FAMILY BUSINESS OWNERS Operating Owner Governing Owner Interested Owner The Steward (want business to grow to next generations) Obedient Owner (obey to parents and joins business) The Investor (only interested in ROI) Heritage Owner (business is memorial to the founder) Trustee/ Owner Hostage Owner (Feels burden of ownership and wish to sell the business if they are allowed) The Captive Partner (siblings or cousins who would never picked on another as business partners but have been made so by an elder’s estate plan) Entitled Owner (has high expectations from others towards them) The Social Entrepreneur (do good to the society and public)

7. Setting Family Policy Family vision and mission Family organisation Family ownership policy Family education and information Family civic, political and philanthropic roles. RESPONSIBILITY AND RIGHTS OF FAMILY SHAREHOLDERS

8. Expectations of family shareholders from managers of business Timely information on company strategy, important organizational changes and company’s basic financial status before information being released to general public. Openness by company board and management to shareholders on the above mentioned information. Ability to participate in the election of board members. Fair policies that protect shareholders interest but also requires their cooperation and risk taking. Acceptance economic performance by the company, including reasonable dividends and capital gains.

9. FAMILY BUSINESS SUCCESSION Family business succession is the process of transitioning the management and the ownership of business to the next generation of the family members. The transition may also include family assets as a part of the process Family members typically play a controlling role in both the management succession as well as the ownership succession KEY POINTS TO BE CONSIDERED BEFORE SUCCESSION PLAN Quick decision on business plan process will provide more alternatives to the process. A child than having right to inherit business should have ability to manage family business. Children's must be encouraged to out of family business so that they have better insight about competition persisting in market and accordingly develop strategies for development of own business. Establishing an outsider as advisor for family business may prove to be risky for which experts in succession planning should be chosen from management team with in the family business.

10. WAYS TO EASE TRANSITION PROCESS Hire most competent advisors (attorneys, accountants, financial planners, and business consultants for succession planning. Succession planning is complicated process and requires advice of expertise on the same. Business valuation : when business transition takes place it leads to change in controlling hands and accordingly even present situation may change in business. Depending on the purpose of the valuation, cost vary accordingly. Usually business owners value family business for purpose of strategic planning of their business. Funding to be considered as part of succession plan : it is important to understand that business may need to grow significantly in order to pay the transition cost which includes which includes tax , insurance, professional advisors. Funds available for expansion should be retained in the process for transition.

11. FAMILY BUSINESS SUCCESSION PLANNING PRE-BUSINESS IMPLEMENT EDUCATION AND PERSONAL DEVELOPMENT PROOF OF COMPETENCE FORMAT START IN THE BUSINESS DECLARATION OF SUCCESSOR

12. PITFALLS/ DEMERITS /PROBLEMS OF FAMILY BUSINESS lack of focus and strategy : family business initially perform in effective manner but at later point of time when aspect of transition comes into picture family business tends to lose its track from its actual vision . Lack of professionalism : data maintenance practice in family business usually will not be in par with that of private companies which proves to be major hurdle during decision making process. Difference in educational levels of family members which drives some people to follow obsolete method while others may focus on implementing latest technology and practices in business. Rivalries between sibling in company which may end up in separation of family business. Difference of attitude towards employees in company Inability to separate family interest from the interest of business Short term approach towards business , leading to an absence of investment in employees and product development. Insensitivity towards customers due to uncompetitive market resulting in weaker market skills.

13. Coping approach : which involves negotiation among family members try and resolve conflict and agree on common terms. Arbitrary approach : in this approach the elder person of the family will be allotted with the power to frame rules and control business activity. But this approach has not proven to be successful as most of the time elder person in family may not prove to be effective manager for business. Managed approach : this approach states that person who has ability to maintain better relationship with key individuals of business and have ability to understand business and manage the same should be appointed as lead person for the business. APPROACHES TO AVOID CONFLICTS IN FAMILY BUSINESS

14. Understanding the Realities Research and Development Raising capital base Consolidation of business Managing the pace of change Appointment of professional managers Mergers and Acquisitions Succession planning Replenishing entrepreneurship Active board of directors STRATEGIES FOR IMPROVING CAPABILITY OF FAMILY BUSINESS

15. Non Participative family members Authority must be clearly defined Attitude of accepting change Giving priority to non-family professionals Family emotions must be kept outside the business activities Effective succession planning Balancing family goals Engage in diversification opportunities Enhancing family image Structured corporate planning IMPROVING PERFORMANCE OF FAMILY BUSINESSES

16. RULES TO SAVE FAMILY BUSINESS Formulate policy framework and rules : succession plan is one of the important aspect for formulating policy framework and rules. Succession plan should outline exactly how the transfer of leadership will occur and should establish the criteria that hires must meet before moving to role of leadership. Families must serve the business : members of the family should give their best performance as per the expectation of the company. Members of the family business should perform as effectively as non family members of the business. Future outlook : business firms should have proper core values which prove to be yardstick for performance of business. Family members should believe that present strategy prove to be obsolete in long run for the same company should be flexible in nature in terms of adjusting to changes taking place in business environment.

17. Accountability : should be one of the major criteria for transition process in family business. Family members should be made clear about what is expected from them by family business and they are required to prove their efficiency through effective performance. They should be responsible for decision taken by them during time of their leadership. Addressing the issue : family business who focus on improving their overall company performance should take structured approach through addressing the issue by careful examination of its core values. Members of the family are required to evaluate their core value and understand their relevance in relation to success of business. Creating shared vision : it refers to communicating vision , objective of the company to family and non family members of business. Communication of information takes place through various sessions of meeting in company. All the family members should have common and shared vision towards goal attainment in company.

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